Warm welcome to London—and to this opening session of our economic Summit.
May I extend a special welcome to Signor Craxi, the only Head of Delegation who was not present at the very successful Summit held in Williamsburg under President Reagan 's Chairmanship last year.
We all have much experience of talking together. I am confident that that will enable us to achieve, in the next two days, a great measure of common understanding and agreement.
The recovery of the world economy has made welcome progress since our meeting last year. We shall want at this meeting to concentrate on how to sustain the recovery over the coming years and how to tackle the problems which remain. We shall not resolve them overnight. We need a medium-term strategy to tackle them.
At recent Summits we have agreed that our objective is recovery based on the continued reduction of inflation. In pursuing that aim we have further emphasised the need to restrain public expenditure, public borrowing and monetary growth.
Although this is not an easy or comfortable strategy for any of us we know that the recovery will be sustained only if we pursue it on that basis.
That must surely be the first message to go out from this Summit meeting: the strategy is the right one: and we intend to stick to it.
There is still much to be done. In different degrees, we have all made progress in reducing inflation. But we have not got it out of the system yet. Unemployment in most of our countries is far too high. We are also concerned about the high level of world interest rates which may put recovery at risk in our own economies and add to the problems of the debtor countries. [end p1]
The task of restraining public expenditure has been made more difficult by the many pressures and the easy expectations which have built up in the past years and which are still powerful. We all face heavy commitments and rising demands for social security. While we are anxious to meet the real humanitarian needs, we must establish and hold to the limits of what can be financed by tolerable levels of tax on the working population. To do that, we need to curb unrealistic expectations. This is another very necessary message which we need to convey from this Summit.
In the world outside our own countries the level of international debt is a serious and pressing problem. We need to discuss our strategy for dealing with the major debtors. It is essential that the debtor countries themselves take measures of adjustment as promptly as possible: such measures are in any case ultimately unavoidable. There are no easy or painless solutions but we can set out ways both in which the commercial banks and the international financial institutions can help and in which the debtor countries can ease their own problems. That way I believe we can show that the problem is manageable.
What can be achieved is seen, for example, in South Korea and Indonesia which two years ago were on all our lists of potentially dangerous cases, but are now no longer; and in Mexico whose strenuous efforts in co-operation with the IMF and other creditors have begun to restore confidence.
In contrast to earlier times, we are fortunate in possessing effective international institutions. Through the Summits and many other meetings we have well established means to develop a common understanding of the world's problems and to achieve the international co-operation needed to resolve them.
This is an opportunity to pool our ideas. For example: — where debtors are beginning to restore confidence, commercial banks may well be willing to contemplate longer-term rescheduling of debt; I suggest we encourage them in this [end p2] — we should also encourage banks to explore ways in which their own balance sheets can be strengthened. — in many debtor countries there are substantial natural and industrial resources: many potential foreign investors would be interested in taking an equity stake and it would be particularly helpful if there were international agreement on investment protection; — Such investment, if allowed could help ease the burdens of debt. Direct equity investment is not only healthier than short-term bank finance, but it also brings undoubted advantages of management and technological expertise and world wide trading connections. It is worth noting that the countries which have welcomed such investment have tended to be among those developing most rapidly. — and many debtor countries will rightly remind us that if they are to trade their way back to a sound position, they must have access to the markets of industrialised nations. — should we not ask the international financial institutions to gear their lending to the performance of their borrowers and to act as a catalyst to attract private capital? In that way we could enhance their role in solving these these very difficult problems.
As we agreed at Williamsburg, every country is different. Some, particularly in Asia, have survived the recession robustly and shown a capacity to generate their own growth without running into unmanageable debt. Some of the poorest in Africa have suffered not only recession but a sequence of years of drought.
The affairs of each country must be handled separately—each has its own specific features. But we must from this Summit show that, with all parties working together, we can create a framework for action over the years ahead which gives hope to the debtor and creditors alike that their problems can be overcome and confidence restored. [end p3]
We need to maintain adequate flows of aid and investment to the developing world. We should also give help and encouragement with practical measures to conserve resources, to enhance their own production of food and energy, and to slow the growth of population.
A major task which faces us in our own economies is that of adapting our societies to an unprecedented pace of technological change.
It is a striking contrast between our countries that progress in creating new jobs has been more rapid in the United States and Japan than elsewhere. This may have lessons for the rest of us. Is there a link with the fact that those are the two countries in which the claims of public expenditure pre-empt a relatively smaller proportion of total national output? Do we need to give more scope to private industry and enterprise to promote the process of adaptation to change.
We face a damaging legacy of restrictive practices in industry and a history of Government regulation and intervention. All were designed to protect employment, but now frequently act as obstacles to the creation of new jobs.
I hope we can explore together some of the ways in which we can promote a more rapid acceptance of change—indeed a welcome for it. — How can we stimulate a livelier industrial response to technological change and new market demands? — How can we encourage people to adapt to new methods of working and sometimes to totally different jobs?
The International Trade Union Delegation which came to see me emphasised that they were supporters not opponents of change.
Many of us have adopted measures to encourage innovative small businesses; should we not also remove [MT handwrote 'reduce' in place of 'remove' in her speaking text] those measures which prop up declining industries? We must lift our sights beyond the near horizon. [end p4]
This accent on change is another message I would like to send out strongly from the London Summit.
We need also to face the challenge of different patterns of international trade. We are accustomed to conflicts of interest in our own countries: short-term preservation of employment against new and growing opportunities for the future; protection of sectoral interests against the wider needs of the economy as a whole. The backward-looking pressures are understandably at their strongest when economic prospects are depressed. Now that the recovery is stronger, I hope we might add to its strength by committing ourselves to rely less on export subsidies and other assistance which distorts trade, to shelter less behind protection of trade in goods and in services, and to remove distorting restrictions on our capital markets. I hope we can encourage specific and practical moves in these directions. Now is the time for us to renew our commitment to free trade. Equally the newly industrialised countries must be more ready to reduce barriers against our exports.
This recognition of the need for change must be tempered by a recognition of the national and international impact of industrialised processes on the environment. We must give a clear indication of our concern to deal with these problems. As you will know from the material you already have, I have made a specific proposal for further work on this by the Versailles Working Group on Technology Growth and Employment.
To sum up, I suggest these issues for discussion:
— creating the the conditions for sustainable growth without inflation;
— the problem of restraining public expenditure in the face of rising demands;
— the problems of international debt for both debtor and creditor countries;
—adaptation to change in our domestic economies and in international trade;
— the need to protect our environment from the impact of industrial processes. [end p5]
I suggest that we leave until this afternoon the problems of debt and international trade when we will have Finance Ministers with us, and that we start on a general economic discussion this morning. Shortly after noon, as I mentioned last night, I will ask you to have a look at, and hopefully clear, the statement on democratic values so that we can issue this at the end of this morning's meeting.
At lunch we will resume a discussion of political issues with Foreign Secretaries, and I hope that we may be able to put out a statement on these matters this evening.